Govt Cuts Interest Rates on Saving Schemes like PPF, KVP, NSC

Center has reduced the rate of small saving schemes like PPF, KVP, SCSS, NSC, etc. by 10 basis points. While the end users may get setbacks from this step, experts say that this will be beneficial for the industry and economy.

Reduction in Interest Rates on Saving Schemes

The government has reduced the interest rates for small savings schemes by 10 basis points or 0.1%. The schemes that are included in these are Public Provident Fund, Kisan Vikas Patra, National Saving Scheme, Senior Citizen Saving Scheme, etc. The last change was seen in the last quarter of April-June. There are also the government reduced the rates by 10 BP. Now the interest rates are as follow:

• Public Provident Fund: 7.8%
• Kisan Vikas Patra: 7.5%
• Sukanya Samridhi Yojna: 8.3%
• National Saving Scheme: 7.8%
• Senior Citizen Saving Scheme: 8.3%

How it will help economy?

The rates will be applicable for the third quarter, i.e. July-September. Though it is not that good for the customers but many experts believe that this change in rate will be beneficial for the economy. The reduction in interest rates will encourage the banks to reduce lending interest rates by some basis points and this will encourage people to take loan for business purpose thus boosting the economy.

Lending interest rates are quite high compared to other countries and that is why Indian business sector is still struggling to take a jump despite many measures taken by the government. Indian business also experiences hardship because of competition from foreign investors as their lending interest rate is quite lower than of us. The government is trying to ensure that lending rates keep on reducing with time to encourage business.

The interest rates on small schemes are directly proportional to the benchmark 10 year government bond yield. Though the government has reduced the interest rates by 10 basis points, there has been no change in the 4% saving deposits. Since April, 2016, government has started to recalibrate the interest rates.